In obtaining an understanding of the entity and its environment, including its internal control,
an auditor
is required to obtain knowledge about the: Design of the relevant internal controls pertaining to financial reporting in each of the five internal control components.
When obtaining an understanding of the entity and its environment the auditor should obtain an understanding of the entity’s selection and application of accounting policies in relation to this the matter least likely to be considered is?
44 The auditor should obtain an understanding of the entity’s selection and application of accounting policies and should consider
whether they are appropriate for its business and consistent with generally accepted accounting principles and accounting policies used in the relevant industry
,[12] or with a comprehensive …
Why obtaining an understanding of the entity and its environment is important for the auditor?
Obtaining an understanding of the entity’s performance
measures assists the auditor
in considering whether such pressures result in management actions that may have increased the risks of material misstatement.
When obtaining an understanding of the entity and its environment the auditor should obtain quizlet?
Auditor should
perform “risk assessment procedures”
to obtain an understanding of the entity and its environment, including its internal control (the nature, timing, and extent of the risk assessment procedures vary with the engagement’s circumstances, such as the entity’s size and complexity and the auditor’s …
What is obtaining an understanding of the entity and its environment?
Obtaining an understanding of the entity and its environment, including its internal control, is a
continuous, dynamic process of gathering, updating and analyzing information throughout the audit
.
Why do we need to understand an entity?
The purpose of obtaining an understanding of the entity and its environment, including its internal control, is
to identify and assess risks of material misstatement and to design and perform procedures that respond to such risks
. … Substantive procedures must be performed for significant risks.
What is permanent and current audit file?
Audit files contain records that comprise the audit documentation for a specific engagement or client. Usually, permanent audit files include
information about a client’s legal and organizational structure
. Current audit files contain documents relating to a particular engagement or period about a client.
What are the 7 audit assertions?
Companies must attest to assertions of
existence, completeness, rights and obligations, accuracy and valuation, and presentation and disclosure
.
What is material misstatement examples?
For example, a material misstatement of revenue
could trigger a decision to buy a company’s stock
, causing losses for the investor when the misstatement is later corrected and the price of the stock declines.
What is the importance of understanding an entity and its business processes prior to conducting an audit?
The purpose of obtaining an understanding of the entity and its environment, including its internal control, is
to identify and assess risks of material misstatement and to design and perform procedures that respond to such risks
.
What is the purpose of risk assessment for an entity?
Risk assessment is the component of the entity’s internal control that
involves identifying and analyzing risks internally and externally
. Risk assessment is relevant to achieving business objectives as well as objectives related to the preparation of reliable financial statements.
Why is separation of duties important for internal control?
Separation of duties is critical to effective internal control
because it reduces the risk of both erroneous and inappropriate actions
. All units should attempt to separate functional responsibilities to ensure that errors, intentional or unintentional, cannot be made without being discovered by another person.
Which of the following factors are included in an entity control environment?
- Integrity and ethical values;
- The commitment to competence;
- Leadership philosophy and operating style;
- The way management assigns authority and responsibility, and organizes and develops its people;
- Policies and procedures.
What are the risk assessment procedures?
- Identify the hazards. …
- Determine who might be harmed and how. …
- Evaluate the risks and take precautions. …
- Record your findings. …
- Review assessment and update if necessary.
